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Global leaders reckon with U.S. tariffs
The Trump administration has said it is using tariffs to renegotiate trade deals, stop illegal drug crossings into the U.S., and boost domestic manufacturing.
President Donald Trump's levying of significant U.S. tariffs on dozens of countries has caused global leaders to both assess their own retaliatory trade measures and plan for trade negotiations.
While Trump's reciprocal tariffs, which vary country by country, have been paused for 90 days, tariffs on automobiles, metals and the universal 10% tariff on all imports to the U.S. remain. Trump also issued exceptions for some tech and electronic products, such as laptops and phones, and plans to issue separate tariffs for semiconductors.
Businesses have delayed investment decisions and companies like Apple stockpiled products in preparation for tariffs that will have costly implications for tech. Businesses rely on countries like China for trade in not just tech devices, but also solar panels, critical minerals and basic consumer goods.
U.S. tariffs have left global leaders deciding whether to work with the Trump administration on trade deals or diversify supply chains outside the U.S., said Mireya Solis, director of the Center for Asia Policy Studies at the Brookings Institution. China is facing hefty 145% U.S. tariffs, while the European Union is dealing with 25% tariffs on steel, aluminum and car parts. While some countries can afford to retaliate, others don't have another option but to work with the U.S. on trade deals.
The threat and reality of tariffs is also prompting countries to consider some of the issues Trump has raised with current trade arrangements and consider new approaches to trade, such as through agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The CPTPP is a trade agreement between 11 countries that aims to reduce trade barriers such as tariffs and facilitate investments in member countries.
"The question is, where are we heading," Solis said during an online panel discussion earlier this week about U.S. tariffs hosted by the Brookings Institution. "Some governments have opted right away for retaliation. Others have tried to first negotiate while also preparing some countermeasures."
U.S. tariffs' effect on global economies
The EU was prepared for U.S. tariffs after Trump's election, but not to the current extent, said Cecilia Malmström, senior fellow at the Peterson Institute for International Economics.
Malmström, a panelist, described the tariffs as "problematic," particularly as the U.S. is one of the EU's most important trading partners. The EU is an important market for U.S. tech companies in particular, and the U.S.-E.U. Trade and Technology Council was established to coordinate on tech and trade.
U.S. tariffs are prompting EU leaders to assess how to diversify their supply chains and "de-risk," she said. The EU has implemented some retaliatory tariffs in response to the U.S. tariffs on steel and aluminum but is planning to negotiate with the U.S. However, Malmström said the issue isn't just about tariffs but Trump's "long list of annoyances with Europe," including tech rules such as the EU AI Act and differences on the war in Ukraine.
"It will affect growth, it will affect supply chains," she said of the tariffs. "The car industry, especially in Germany, is having a big problem right now."
The effect of U.S. tariffs on the automobile sector will also be felt in Japan, particularly for small and medium-sized businesses, said panelist Shujiro Urata, chairman emeritus at the Research Institute of Economy, Trade and Industry, and a panelist.
He said Japanese policymakers plan to raise concerns that the U.S. has violated the U.S.-Japan Trade Agreement, negotiated during the first Trump administration, as well as World Trade Organization rules. The U.S.-Japan Trade Agreement reduced tariffs on certain industrial and agricultural goods.
However, he added that Japan can’t retaliate against the U.S.
"Retaliation is not an option for Japan for several reasons," he said. "One is national security. We don’t want to jeopardize our relationship with Washington D.C. In terms of retaliation, you need some leverage to fight against the tariffs. Japan doesn't seem to have much leverage in this."
Mexico, which exports roughly 83% of its goods to the U.S., also doesn't have a lot of leeway for retaliation, said panelist Jesús Carrillo, guest lecturer at El Colegio de Mexico and former economics director for the Mexican Institute for Competitiveness. Carrillo said he expects the United States-Mexico-Canada Agreement to keep trade relationships stable. Still, the mechanisms for renegotiation of the agreement this year are unclear since Congress has to approve it, he added.
China's response to the U.S. differs from that of countries like Mexico and Japan. China was "prepared for a fight," said panelist Scott Kennedy, senior advisor in Chinese business and economics at the Center for Strategic and International Studies. China has imposed its own retaliatory measures, raising tariffs on U.S. goods to 84%.
"The Chinese expected serious trade tension with the U.S. under the Trump administration," he said. "It's really clear that shock and awe wasn't going to shock and awe them. They were ready for whatever was going to come their way."
Kennedy said China feels that it has advantages in pushing back against U.S. tariffs as the country has diversified its trading partners and advanced its own technological capabilities. Most of China's diversification and investments in the last several years follow tariffs implemented under the first Trump administration and, later, efforts under former President Joe Biden to restrict China's access to advanced technologies.
"In a game of chicken, the Chinese have a lot of reasons to stand tough," Kennedy said.
Ultimately, the hit to China's overall economy depends largely on whether other countries join with the U.S. and impose restrictions on China to limit their exports and investments, Kennedy said.
Trump has said tariffs will help the U.S. renegotiate fairer trade deals, stop illegal drugs from crossing the border into the U.S. from Mexico and Canada, and spur investment in domestic manufacturing.
Indeed, Nvidia said Sunday that it plans to manufacture AI supercomputers in the U.S. Nvidia's plans follow other significant U.S. investment announcements. Apple earlier this year pledged $500 billion for AI infrastructure in the U.S. TSMC committed to a $100 billion U.S. investment, while OpenAI is leading a $500 billion U.S. AI infrastructure investment.
Makenzie Holland is a senior news writer covering big tech and federal regulation. Prior to joining Informa TechTarget, she was a general assignment reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.
